Article Review about financial statement
Article Summary & Discussion-APA Format & NO PLAGARISM
Please see attachment for article.
This assignment requires the use of Chapters 3-6 of Financial Reporting, Financial Statement Analysis and Valuation, 8th Edition, James M. Wahlen, Stephen P. Baginski, Mark Bradshaw. ISBN-10: 1285190904
Your review should first summarize the article in 500 words or less. After the summary, answer the following questions.
1. What are the main concepts of this article? Quote a sentence or a few sentences about these concepts.
2. How do these concepts relate to concepts in the text book? Compare the two sources in a comprehensive way.
3. Are there concepts, descriptions, or wording in the article that seems counter to (or contradicts) concepts in the text book? Quote a sentence or a few sentences about this concept. Explain the two concepts within these counter arguments (one in the article and one in the text book).
ACCGUNTING HORIZGNS
Supplement
1flo3
pp.TT-96
1 I i
The Quallty Of F111 ancnal Statements:
Perspectwes from the
Recent Stock Market Bubble
Stephen H. Penman
SYHGPEIS: During the recent eteek market bubble. the treditienel fineneiel reperting
medel wee assailed es e heekwerd-Ieekfng system, eut ef date in the Information Age.
With the bursting ef the bubble, the quality at financial reparting is again under scrutiny.
but new fer net adhering tn traditinnal principles cf scund earnings measurement and
asset and Iiahiiity reccgniticnt This pager is a retrcspecthra an the quality cf financial
reperting during the 199os. Did reperting under LLS. GMP partcrm well during the
bubble. cr was its quality suspect? My premise is that financial reperting shcuid senre as
an anchcr during bubbles, tc check speculative beliefs. With a fccus en the sharehclder
as custcmer. the paper asks whether sharehciders were well senred er whether finan~
ciaI reperting helped tc pyramid earnings and stuck prices. The scarecard Is mined. A
number cf quality features cf ecceunting are identified. Inevitable imperfecticns clue tc
measurement difficulties are recegniaed. as a quality warning tc analysts and inyestcrs.
A number cf failures cf GAAP and financial disclesures are identified that. if net receg-
nixed, can premete mementum investing and steclt market bubbles.
INTRODUCTION
encerns abeut the quality ef acceunting intensify as ecenernies turn dewn, cernpanies
t’eunder, and lay-esters lese. With the bursting ef the recent steck market bubble, the
quality ef acceunting is again under scrutiny. This essay questiens the quality ef’ financial
reperting against the hackdrep ef the steck market bubble.
Bubbles werk like a pyramiding chain letter. Speculative beliefs feed rising steck prices that
beget eyen higher prices, spurred en by further speculatien. Mementum inyesting displaces funda-
mental inyesting. One rele ef acceunting is te interrupt the chain letter, te challenge speculatiye
beliefs, and se ancher investers en fundamentals. Peer acceunting feeds speculative beliefs. Warren
Buffett recegniaed the det-cem beem efthe late 199th as a chain letter, with investrnent bankers the
“eager pestmen.”‘ He might well have added their assistants, the analysts, many bf whem shame-
lessly disregarded fundamentals? But was acceunting alse te blame?
Stephen H. Penman is rr Prefesser rrr Ceftrmbfrr University.
The cemments ef Patricia Dcchew and Baruch Lev are appreciated. Prefesser Fenman‘s research is suppened by the
Merged Stanley Research Schelar Fund at Celurnbia University-
l See Buffett’s annual letter te shareheldcrs in Berkshire Hathaway’s Ellilti armual repert.
I l discuss the misguided analysis during the bubble in “Fundamental Analysis: Lessens frcm the Recent Steel: Market
Bubble,“ a speech te the Japanese Seciety ef Security Analysts.
